Most of the discussion these days is about outsourcing investment fiduciary duties under ERISA section 3(38), which transfers full discretion or limited discretion to the co-fiduciary under section 3(21). But more and more advisors are looking at transferring administrative fiduciary responsibility to third parties, or so-called 3(16) fiduciaries. (This was outlined well last year in a cover story by Marcia Wagner in Plan Consultant magazine.)
Though some bundled providers offer that service, most of the offerings are limited and can include conflicts of interest. One independent 3(16), ANB Trust (a NAPA Firm Partner) run by Jeff Atwell, an independent, full-service 3(16) that works exclusively with advisors, just passed $1 billion in assets. ANB has more than 100 plans, and business is booming, says Atwell.
We caught up with Atwell at the NAPA DC Fly-In Forum Sept 30, and, in the process, Sheridan Road principal Jim O’Shaunessy became very interested and joined the discussion. O’Shaunessy was especially interested in ANB’s 3(16) services for retail clients, where there is constant turnover and determining eligibility can be a nightmare. Most record keepers are not capable of handling these complexities.
Atwell explained that the process of becoming the plan’s 3(16) includes resignation by the plan sponsor, moving them to a supervisory role; an engagement letter; and amendment of plan docs. They work with all types of DC plans (but not DB plans). Their duties include interpreting plan docs and working with the payroll provider and record keeper as well as with the plan sponsor. Though they can work with bundled providers, most of their clients are in a TPA relationship. ANB charges as much as 40 BPs for plans under $1 million to as little 12 BPs for larger plans. Other than a $5 mailing fee for participant disclosures, there are no additional fees.
So does hiring an outsourced 3(16) make sense? The answer sounded like yes and no — for simple plans with a limited number of employees, adding more fees to something that is working might give the advisor and plan sponsor some comfort, but they still have to supervise the 3(16) fiduciary. But for retail clients or those with large turnover, it might be a good solution, with services paid out of plan assets. As part of their duties as a 3(16) fiduciary, ANB has to review all the fees of the plan’s service providers to make sure they are reasonable — including the advisor — which can be tricky, but is required.
